Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

Restructuring & Insolvency

Australia Small Flag Australia

A debtor can obtain financing and otherwise use its assets as security in a scheme of arrangement and informal voluntary reorganisations. This is solely a matter for agreement between the company and its creditors. There are no special priorities given to new debt as of right and such priorities have to be negotiated and agreed with any existing creditors who already hold some form of priority.

Cayman Islands Small Flag Cayman Islands

Both official liquidators and provisional liquidators may obtain third party financing and grant security over the company's assets, subject to obtaining the prior approval of the Court.

In the absence of any security interest being granted to a lender, such lending will rank as an expense of the liquidation, with the lender enjoying a statutory priority over the company's unsecured creditors.

Switzerland Small Flag Switzerland

Yes, this is possible. The administrator's consent and in case of posting of collateral, court approval will have to be sought and, if granted, the claim for repayment of the financing party is granted a super-priority in the form of an obligation of the estate which will be satisfied ahead of all other claims. Administrators in Switzerland are generally rather reluctant to take out new financing, though.

Germany Small Flag Germany

After an insolvency petition has been filed, financing during preliminary proceedings is most often limited to a pre financing of the employees’ wages in order to continue business. Such financing is secured by the employees’ claims against the Federal Employment Agency, because the State will – if certain requirements are met – substitute their salaries up to a threshold amount for a maximum period of three months before insolvency proceedings are opened. The employees’ substituted claims are assigned to the State by operation of law.

If during (final) insolvency proceedings the administrator (or the debtor in self-administration) enters into a loan agreement and receives the loan, its repayment constitutes a liability of the estate, ranking after the court costs and the administrator’s fees, but ahead of the claims of unsecured creditors and must be paid in full, before unsecured creditors (other than those entitled to separate satisfaction) receive a dividend.

Further, an insolvency plan can stipulate that financing granted during the supervision period after an insolvency plan has been confirmed by the court shall have super priority status if the rescue fails and new insolvency proceedings are opened (Sec. 264 Insolvency Code).

Updated: March 14, 2017